Earlier this month, the country's second-largest telecom operator Reliance Jio officially launched its fixed broadband service JioFiber. It had been beta-testing for over a year. Just a few days before the launch, the telco's chairman Mukesh Ambani gave a curtain raiser at Reliance Industries' AGM (annual general meeting) of what to expect from JioFiber. For Jio, which disrupted the telecom sector more than three years ago, the bar was too high this time but it seems to have fallen short of the expectations of most consumers, industry experts and analysts.
To begin with, the pricing of JioFiber is nowhere close to its disruptive wireless pricing that shook things up in the telecom sector. For a telco, which has been dictating the tariff structure in the wireless segment, the pricing of Jio's fixed broadband services is unlikely to cause trouble to incumbents such as Bharti Airtel and BSNL. How?
Let's do a pricing comparison. As per the first quarter report of Bharti Airtel, its ARPU (average revenue per user) for home broadband in June 2019 stood at Rs 825 per month, and this segment contributed nearly 4 per cent to the telco's revenues in the quarter. Jio's cheapest plan (Bronze) is going to cost exactly the same amount - Rs 825 (Rs 699 plus 18 per cent GST). With the lack of disruptive pricing, Jio would neither be able to increase the overall fixed broadband penetration nor attract the subscribers of other telcos. According to TRAI data, there are 18.42 million wired broadband subscribers in the country.
"We believe Jio's tariffs are competitive but not disruptive. We do not expect these plans to change adoption dramatically as other large internet service providers (ISPs) offer similar plans and some regional ISPs offer even lower prices," said Kunal Vora, analyst at BNP Paribas, in a report.
A move away from the tariff war strategy has let down other analysts as well who hold a similar view. In a report, the ratings agency CRISIL said that the lack of pricing aggression and non-attractive bundled pricing would result in limited disruption in the underpenetrated wired broadband market. "Pricing for mid-size packs continues to remain higher than current wireless pricing on a per GB basis...JioFiber's base plan starts at 100 Mbps (megabits per second) for 100 GB (gigabyte) data limit...the base plan of most other wired broadband providers starts at 50 Mbps for almost the same amount of data, if not more. While Jio's pricing per GB is approximately Rs 4 for the base plan...government-owned BSNL's is much lower at Rs 2," it said.
There are over 300 broadband service providers in the country but even the largest operator - BSNL - has just about 9 million subscribers (subs). That raises serious doubts on Jio's aggressive targets to increase its subs base. For instance, the telco aims to connect 20 million homes and 16 million enterprises across 1,600 towns, up from 0.5 million home broadband customers currently. Although the timeline to achieve the target has not been specified, experts argue that fixed broadband market is a different ball game. Jio didn't respond to the Business Today's queries.
One can argue that with a low fixed broadband penetration of 7 per cent, there is enough scope for Jio and others to grow the market. Why not? Developed countries like the UK, US and Japan have 40-50 per cent penetration levels. But the reason for slow adoption of fixed broadband services is largely because of the relatively high tariffs and poor focus of telcos in this space. Jio's tepid entry is not going to jolt the incumbents out of slumber but the pricing will continue to remain a roadblock.
Also, unlike the wireless business where by putting just one tower, a whole area (over 2,500 subs) gets activated, it takes time to wire up housing societies and set up a connection. "At the current price points, operators like Airtel and BSNL who have toiled for years in building broadband business have a clear advantage and Jio might take years to reach their scale," says a telecom consultant.
In a recent note, investment bank Goldman Sachs has forecast that Jio would reach 8 million subs in this segment by 2022/23 - four years from now.
For Jio, which reached the record 100 million mobile subs in 170 days, there is a significant fall in the frenzy that it had generated three years ago. That is because Jio's competitors, primarily Airtel, are now better prepared to take it head-on than last time when it was caught unaware.
To be fair, Jio understands the challenges in this business too well. It has been preparing to gain foothold in the fiber-to-the-home (FTTH) segment through acquisitions of large MSOs (multiple system operators) - Den Networks and Hathway Cable and Datacom. Hathway has over 50 per cent share in the MSO cable broadband market, which has given Jio a bit of leverage.
Whether it's broadband, smart home solutions, free HD television offer, first-day-first-show of movies, experts are busy picking holes in Jio's offering, and pointing out missed opportunities. For instance, Jio couldn't tap the large cable and DTH market - called Pay TV in general parlance - where the penetration is huge (at 65 per cent) with over 190 million households. Nearly 88 per cent of these households don't have wired broadband, and could have been easy targets for Jio if it had bundled the broadband services with Pay TV. Moreover, it's believed that Jio is unlikely to have a standalone Pay TV offering in the future which could slower its pace of signing up new users.
Similarly, the free HD TV offer is available on plans starting at Rs 1,299 per month (for 24-inch TV), but there is a minimum upfront commitment of Rs 35,000. As per analysts, this offer may appeal to a limited set of consumers. Why? "Eighty-five per cent of Indian consumers buy 32-43-inch screen TVs, with very limited sales of sub-26-inch TV sets...a quick look at the e-commerce website Amazon.in suggests 24-inch televisions in India are available starting Rs 5,000. We believe Jio's target homes (of 20 million initially) are likely to already have an HD or UHD television and most consumers may not be willing to commit a large upfront amount for home broadband," Goldman Sachs said in a report.
Jio also talks about services like virtual reality sets, home security, content sharing, and device security in its top-end plans. Given the telco's aim to target masses, these niche services might not have many takers at this point. 'Smart homes', as a concept, is yet to take off in India where people are still struggling to get basic connections. The presence of fixed broadband services in rural India is fairly low. Also, households would rarely need data speeds of 1GB, and such high bandwidths are mostly used for IoT (internet of things) and high-end gaming.
Jio's other announcement - first-day first-show - may not be a big draw either. The telco plans to launch this service - where consumers will get to watch movies at their homes on the day of official release - by the middle of 2020. It will be available for users subscribing for Rs 2,499 per month plan and above. Experts believe that there will be just a few hundred thousand subscribers for this service. "People would not subscribe to JioFiber's costly plans and wait for new movie releases since they already have plenty of choices such as frequent releases of shows and movies in the OTT (over-the-top) space," says a telecom consultant.
While analysts are giving thumbs down to JioFiber, it is equally important to highlight that the telco has proved them wrong in the past on many occasions. But for now, it seems that the poster boy of the wireless market is lacking the punch in the wired space.